Abstract

Digital transformation is reshaping industries, business models, and investment opportunities, creating new challenges for international portfolio management. The European communication services sector has become a strategic component of the digital economy, driven by advances in artificial intelligence (AI), digital platforms, 5G infrastructure, cloud computing, cybersecurity, and data-driven business models. Despite its importance, limited evidence exists regarding the effectiveness of portfolio optimisation strategies within digitally transforming sectors. This study investigates international portfolio optimisation using constituent firms of the MSCI Europe Communication Services 35/20 Capped Index. Drawing upon Modern Portfolio Theory and the Treynor–Black framework, an actively managed portfolio is constructed and evaluated against the SPDR® MSCI Europe Communication Services UCITS ETF and an equal-weight portfolio. Using daily market data, the analysis estimates asset returns, alpha and beta coefficients, portfolio weights, and risk-adjusted performance measures, including the Sharpe and Treynor ratios. Paired-samples t-tests are employed to assess the statistical significance of performance differences among investment strategies. The findings show that the Treynor–Black portfolio generated the highest annual return (27.32%), outperforming both the benchmark and equal-weight portfolios, and the highest percentage of Sharpe ratios (1.2159), suggesting that diversification benefits outweighed the advantages of active security selection. Hypothesis testing indicates no statistically significant difference between the Treynor–Black and equal-weight portfolios, and no statistically significant difference exists between the proposed and benchmark portfolios. The study extends the international portfolio management literature by applying the Treynor–Black model to a digitally transforming sector. The findings suggest that portfolio performance is influenced not only by firm-level financial characteristics but also by broader digital and institutional environments. Firms operating within digitally advanced and well-governed economies appear better positioned to exploit technological innovation and generate sustainable long-term value. Overall, the results demonstrate that successful international portfolio optimization requires balancing active security selection with diversification while recognizing the role of digital transformation, governance quality, and innovation ecosystems in shaping investment performance within the digital economy.

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